7 May 2013
Update | Sector: Consumer
Godrej Consumer Products
BSE SENSEX
S&P CNX
19,674
5,971
CMP: INR829
TP: INR800
Neutral
Strong execution; Margin recovery in FY14
Neutral on all-time high valuations
Bloomberg
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
GCPL IN
340.3
282.1/5.2
936/465
0/16/30
Valuation summary (INR b)
Y/E March
Sales
EBITDA
Adj. PAT
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
42.3
8.8
29.6
1.0
31.6
7.7
21.6
1.2
25.5
6.4
18.0
1.2
2013 2014E 2015E
63.9
10.0
6.7
19.6
26.7
20.9
24.8
40.8
78.3
13.6
8.9
26.3
33.9
24.3
30.1
38.1
90.9
16.1
11.1
32.5
23.8
25.2
31.5
30.8
93.7 108.2 129.1
Shareholding pattern %
As on
Mar-13 Dec-12 Mar-12
Promoter
63.5
63.5
64.0
Dom. Inst
1.2
1.4
1.8
Foreign
28.2
27.6
25.3
Others
7.1
7.6
9.0
We attended Godrej Consumer Products' (GCPL) analyst meet and following are the key
takeaways:
Management highlighted six priorities - core category leadership, international growth,
focus on innovation, future ready sales system, best-in-class supply chain and
performance culture.
It reiterated commitment to 3*3 strategy to deliver outperformance. There exists
significant headroom for growth in both domestic and international business due to
low penetration and consumption levels.
FY13 saw a series of innovations -
Expert Crème, Aer, Cinthol
re-launch,
Anti-Roach
gel
etc. Management guided for doubling the innovation rates in next three years and
expects better gross margins to support the investments behind the same.
Focusing on new channels - e.g. chemists, color cosmetics along with continuing the
thrust on coverage expansion in both urban and rural. Company added ~15,000 villages
in FY13 and expanded its reach by 10%. It aided rural growth, which was 2x of urban.
Cross pollination of product portfolio has already started to deliver results -
Crème
Hair
color sachets from Argentina in India,
HI
from India in Nigeria,
Aer
freshners from
Indonesia in India.
Supply chain cost synergies, post Sara Lee acquisition (Project Neo), delivered results
ahead of timelines and resulted in INR2.5b savings.
We estimate robust 19% sales CAGR over FY13-15E. This coupled with strong 200bp
margin expansion should drive our expected 29% EPS CAGR. However, we believe the
current valuations at 31.6x FY14E and 25.5x FY15E EPS reflects all positives. We
maintain a Neutral rating on the stock, with a target price of INR800 (25x FY15E EPS).
Long term strategy: building core presence with focus on innovations
GCPL highlighted six key priorities:
1) core category leadership, 2) international
growth, 3) innovation and renovation, 4) future ready sales system, 5) best-
in-class supply chain and 6) agility and high performance culture.
It emphasized on innovations and product differentiation as a key to win in
the marketplace, which, though competitive, presents a strong opportunity in
GCPL's focus categories.
For the international business, company's focus is to build a future ready sales
organization, with local empowerment in a "Godrej way". It is investing in
people, process, brands and market infrastructure to create meaningful
differentiation v/s competition.
Stock performance (1 year)
Investors are advised to refer through
disclosures made at the end of the
Research Report.
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +9122 3982 5404
Sreekanth P V S
(Sreekanth.P@MotilalOswal.com); +9122 3029 5120
1

Godrej Consumer Products
Enough headroom exists in domestic business
Domestic business has grown by 20% in FY13 and all the key categories
outperformed market growth.
In the domestic market,
Good Knight, HIT, Godrej No.1, Cinthol
and
Godrej Expert
are its key brands. They contributed 88% of domestic revenue in FY13 v/s 84% in
FY11, indicating a scale-up in core brands.
Significant growth potential exists in Hair Colors and Household Insecticides as
consumption and penetration levels are still lower compared to even developing
markets.
Core brands contributed 88%
of FY13 sales…
…from 84% in FY11
…Home Care and Personal Wash
contribute 80% to sales
Exports,
Others, 4% Hair
6%
Care,
10%
Home
Care,
45%
Personal
Wash,
35%
Source: Company, MOSL
Core categories outperform; Hair Colors rebound (%)
4Q13
GCPL growth
Category growth
17
13
26
12
27
13
FY13
GCPL growth
Category growth
26
20
25
13
14
19
Source: Company, MOSL
Soaps
Home Insecticide
Hair Colors
Low penetration offers opportunity, especially in rural
…some progress being made in FY13
Source: Company, MOSL
7 May 2013
2

Godrej Consumer Products
International business: 3*3 strategy and cross pollination form the
cornerstone; Margin recovery in FY14
International sales grew 51% in FY13 and now contribute 44% of consolidated top
line. However, margins compressed in Africa and Latam due to host of country
specific issues in these markets - election related shutdown, discounting, cap on
price hikes etc. Management expects margins to show a recovery in FY14.
Company has been actively cross pollinating the portfolio across regions.
Crème
Sachet and
Aer
air fresheners have been launched in India from Argentina and
Indonesia, Household Insecticides (Good
Knight)
and Hair Color (Renew) from
India has been introduced in Nigeria and South Africa.
GCPL continues its investments in these markets and is building its distribution
presence, investing in new product launches/relaunches, creating a strong
backbone (ERP implementation, professional finance and audit teams) to support
the business growth.
Sales growth led by acquisitions
EBITDA margin weak due to country
specific issues
Indonesia + Africa form 70% of
international revenue
Source: Company, MOSL
Africa strategy: consolidate and build on the existing platform
Darling group:
GCPL holds 51% stake (has put and call options for further stake) in
the joint venture with four countries currently covered.
Company has consolidated 65% of the Darling group business (Darling Phase II
was completed in 2HFY13). South Africa accounts for ~30%, followed by ~35%
each by Nigeria and Kenya.
Management indicated that the ethnic hair care market is a USD2.5b opportunity
in sub-Sahara African region and accounts for one of the highest non-food
discretionary category among African women. The category is divided into wet
hair (~45%) and dry hair (~55%). In the wet hair segment, relaxers (45% of the
segment), though widely used, are perceived as harsh due to a high chemical
presence, and hair extensions (like braids and weaves) is a much faster evolving
market.
Its key focus areas include:
a) building on salon engagement, b) taking HI to Africa
through Darling, c) enhancing distribution networks and d) building deeper go-
to-market strategy.
7 May 2013
3

Godrej Consumer Products
Innovations to accelerate in the medium term
Innovations and marketing investments for new launches has been the focus area
for GCPL for a while now. It had five major launches in the last year.
Key launches/relaunches in FY13:
GCPL launched a)
Expert Crème
which reached
200,000 outlets in six months and exceeded internal benchmarks as per
management, b)
HIT
anti-roach gel, c) air fresheners, d) relaunched
Cinthol
with a
new campaign and e) new variants in its
Godrej No 1
brand, which is inching closer
to the INR10b mark.
Due to the series of innovation, GCPL has been aggressively investing in NPD and
ad spends. Of the 20% growth in the domestic business, 3% is a result of NPD and
of the 42% growth in A&P, 24% has been for new products.
While management expects the pace of innovations to double in the next three
years, it believes savings from gross margin expansion will fund new launches.
3% contribution from NPD to overall growth...
...24% growth in NPD from 42% growth in ad spends
FY13 saw series of innovations across categories
Source: Company, MOSL
7 May 2013
4

Godrej Consumer Products
Valuation and view: Trading at all-time high multiples; Valuations capture
positives; Retain Neutral
Strong execution track record in integrating and delivering the synergies from
acquired businesses has been the key highlight of GCPL in the past two years.
We like its focused efforts to widen the gap v/s competition in its areas of strength
(Household Insecticides) and aggressive investments in business fundamentals
(new launches, brand spends etc) in its areas of weakness (Hair Colors). This
resulted in outperformance in all categories, barring Hair Colors, which is showing
signs of revival post the successful Expert Crème launch.
Correction in input costs, lower ad spends and return of operating leverage (post
the revival in International business) provide strong tailwinds for FY14.
We forecast robust 19% sales CAGR over FY13-15E. This coupled with strong 200bp
margin expansion should drive our expected 29% EPS CAGR.
However, we believe current valuations at 31.6x FY14E and 25.5x FY15E EPS reflect
all the positives. We note that GCPL trades at lifetime high P/E multiples. While
long term structural growth story of GCPL is unchallenged, premium valuations
adequately capture the same.
We maintain a
Neutral
rating on the stock with a target price of INR800 (25x FY15E
EPS). Sharp spike in input costs, currency and political risks in international
operations are the key risk factors to monitor.
GCPL: Trades at all time high P/E (x)
GCPL: One year going forward P/BV (x)
Source: Bloomberg, MOSL
7 May 2013
5

Godrej Consumer Products
Financials and Valuation
Income Statement (Consolidated)
Y/E March
Net Sales
Change (%)
Cost of Goods Sold
Gross Profit
Margin (%)
Total Expenditure
EBITDA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Charges
Other Income-rec.
Forex gain/(loss)
PBT
Change (%)
Tax
Deferred Tax
Tax Rate (%)
PAT
Change (%)
Margin (%)
Minority interest
Group Adjusted PAT
Non-rec. (Exp.)/Income
Reported PAT
2011
36,763
80.1
17,072
19,691
53.6
30,405
6,358
55.7
17.3
499
436
643
-52.8
6,118
45.7
1,382
0
22.6
4,736
39.5
12.9
0.0
4,736
411
5,148
2012
48,509
32.0
23,185
25,324
52.2
39,903
8,607
35.4
17.7
644
658
672
205
7,771
27.0
2,261
0
29.1
5,511
16.4
11.4
245
5,266
2,002
7,267
2013
63,908
31.7
29,511
34,397
53.8
53,923
9,985
16.0
15.6
770
775
844
328
8,957
15.3
1,792
0
20.0
7,165
30.0
11.2
493
6,672
1,289
7,961
2014E
78,327
22.6
36,668
41,660
53.2
64,724
13,603
36.2
17.4
895
662
880
0
12,925
44.3
3,047
-89
24.3
9,789
36.6
12.5
856
8,933
0
9,789
(INR Million)
2015E
90,875
16.0
42,352
48,523
53.4
74,732
16,143
18.7
17.8
1,022
579
999
0
15,541
20.2
3,497
-107
23.2
11,937
21.9
13.1
874
11,063
0
11,937
Balance Sheet
Y/E March
Share Capital
Reserves
Minority Int
Net Worth
Loans
Deferred Liability
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Capital WIP
Goodwill
Currents Assets
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Other Current Assets
Curr. Liab. & Prov.
Account Payables
Other Liabilities
Provisions
Net Current Assets
Net Assets
E: MOSL Estimates
7 May 2013
2011
324
16,928
17,252
20,032
86
37,369
19,148
3,775
15,373
154
15,404
13,774
4,394
3,840
2,269
3,149
122
7,335
3,331
3,915
89
6,439
37,370
2012
340
27,796
591
28,136
19,030
111
47,868
20,403
4,940
15,464
158
21,454
22,606
7,839
4,725
6,399
3,143
500
11,815
7,702
3,684
428
10,791
47,867
2013
340
31,543
1,170
31,883
13,530
180
46,763
25,618
5,734
19,885
150
21,454
19,083
8,304
6,055
558
3,565
600
13,808
9,873
3,904
31
5,275
46,763
2014E
340
36,494
2,027
36,835
12,030
270
51,161
29,843
6,629
23,214
150
21,454
22,866
9,801
7,511
788
4,047
720
16,523
12,107
4,371
46
6,343
51,161
(INR Million)
2015E
340
43,576
2,901
43,916
10,530
377
57,723
34,068
7,651
26,417
150
21,454
28,478
12,449
8,714
1,856
4,595
864
18,775
13,978
4,745
52
9,702
57,724
6

Godrej Consumer Products
Financials and Valuation
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
EV/Sales
EV/EBITDA
P/BV
Dividend Yield
Return Ratios (%)
RoE
RoCE
Working Capital Ratios
Debtor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2011
14.6
16.2
53.3
5.0
34.4
2012
15.5
17.4
82.7
4.6
29.7
2013
19.6
21.9
93.7
8.0
40.8
2014E
26.3
28.9
108.2
10.0
38.1
2015E
32.5
35.5
129.1
10.0
30.8
42.3
37.9
4.6
29.6
8.8
1.0
31.6
28.7
3.7
21.6
7.7
1.2
25.5
23.3
3.2
18.0
6.4
1.2
27.5
20.1
18.7
20.7
20.9
24.8
24.3
30.1
25.2
31.5
38
2.4
36
3.1
35
3.2
35
3.4
35
3.4
1.2
0.7
0.4
0.3
0.2
Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Extraordinary Items
Inc in FA
Pur of Investments
Goodwill
CF from Investments
Issue of Shares
Inc in Debt
Dividend Paid
Other Income
Interest Paid
Other Item
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
7 May 2013
2011
6,358
-1,382
-4,685
291
411
-15,144
670
-12,285
-26,348
15
19,663
-1,966
643
-436
1,365
19,283
-6,774
3,052
2,269
2012
8,607
-2,261
-8,562
-2,216
2,002
-1,260
0
-6,050
-5,309
0
-1,002
-1,820
672
-658
-443
-3,252
-10,776
2,269
6,399
2013
9,985
-1,792
-9,109
-916
1,289
-5,207
0
0
-3,918
0
-5,500
-3,185
844
-775
-417
-9,032
-13,866
6,399
558
2014E
13,603
-3,047
-10,272
284
0
-4,225
0
0
-4,225
0
-1,500
-3,982
970
-662
-90
-5,263
-9,203
558
788
(INR Million)
2015E
16,143
-3,497
-13,401
-754
0
-4,225
0
0
-4,225
0
-1,500
-3,982
1,177
-579
-179
-5,062
-10,042
788
1,856
7

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Godrej Consumer Products
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